Deck 17: Implementing Corporate Strategy: Management of the Multibusiness Firm

Question 1

The example of Exxon illustrates:

A)An efficient and pertinent strategic planning system
B)An unsuccessful firm
C)A managerial system exclusively built on corporate control
D)A managerial system exclusively built on division autonomy

Answer 1

A

Question 2

Portfolio planning systems, (also called portfolio matrixes), contribute to which function, among others?

A)Analysis of portfolio balance, and allocation of resources
B)Growth of each business, and analysis of rivalry
C)Competitive advantage, and benchmarking in other industries
D)Control of each business's performance, and conflict resolution

Answer 2

A

Question 3

How has evolved the conception of corporate managers about the role of a corporate parent regarding its divisions?

Answer 3

Two decades ago most of the emphasis was on managing large business empires, and controlling divisions.
This conception has recently shifted to value creation, and to the identification and the construction of the means to do so.
Corporate parenting was substituted to corporate control, and reflects that shift.
Changes in corporate management perspective include decentralization of decision-making closer to the markets and lower within division levels, a shift from formal to informal coordination, and a more complete and elaborate role for corporate management. Top corporate managers help divisions by acting as service centers, guides for the future, and a knowledge and competencies hub, to collect, encode, enrich, and diffuse resources and capabilities.
General guidance encompasses managerial help for change, strategic direction, organizational structure change, contribution to a firm's general efficiency, and developing flexibility, integration, and coordination.
Three fundamental roles of corporate management must be performed for the entire firm: the entrepreneurial process, the integration process, and the renewal process.

Question 4

Which company pioneered many managerial innovations, at the end of the 1960s?

A)Dupont de Nemours
B)General Electric
C)ITT
D)General Motors

Question 5

The GE/McKinsey matrix has two dimensions:

A)Intensity of technology, and intensity of competition
B)Strengths of the firm, and weaknesses of the divisions
C)Competitive advantage, and level of innovation
D)Industry attractiveness, and division's competitive advantage

Question 6

How do you control performance in a diversified firm?

Question 7

Are mergers and acquisitions an efficient way for firms to grow?

Question 8

The most basic decisions corporate strategy must answer are:

A)How should we manage businesses to generate as much value as possible?
B)What businesses should we be in?
C)What businesses are we in?
D)Answers a and b

Question 9

Howard Hughes at Hughes Corporation, Ken Lay at Enron, Dennis Kozlowski at Tyco, and Jean-Marie Messier at Vivendi illustrate:

A)The failure of large diversified bureaucracies
B)Fraud and CEOs' self-serving behaviors
C)CEOs operating their firm as personal fiefdoms
D)The success of large diversified firms

Question 10

Besides managing the overall corporate portfolio of businesses, corporate management adds value by:

A)Providing encouragement, guidance and control, and managing change and linkages between businesses
B)Hiring and firing useless employees, managing capabilities, and building advertising campaigns
C)Designing strategic orientations, and developing detailed operational plans for each business
D)Communicating the strategic orientations to the main stakeholders, and managing conflicts at lower divisional levels

Question 11

Carlyle, KKR, Blackstone, Texas and Pacific are:

A)Mortgage companies
B)State-owned firms
C)Equity firms
D)Large diversified firms' subsidiaries

Question 12

Exxon Mobil, SAB-Miller, and 3M are respectively:

A)A technology-based firm, a domestic firm, and a globalized firm
B)A multiproduct firm, a multinational company, and a vertically integrated firm
C)A multinational company, a multiproduct firm, and a vertically integrated firm
D)A service firm, a vertically integrated firm, and a globalized firm

Question 13

What are the advantages and disadvantages of a BCG matrix?

Question 14

What does mean the substitution of an "administrative interface" between an operating division, and the stockholders?

Question 15

Parenting advantage means:

A)That corporate managers should act like good parents and use the same skills in the corporate center
B)That a corporate parent must add more value to each division or business unit than other corporate parents could
C)That the group excels at corporate coaching
D)That the group has spawned many successful subsidiaries

Question 16

What are some limits of the multidivisional form?

Question 17

Between 1986 and 1992, major oil firms:

A)Exhibited greed and illegal behaviors
B)Eliminated competition
C)Restructured their activities
D)Were on the verge of bankruptcy

Question 18

One of the BCG matrix's virtues is its:

A)Complexity
B)Universal acceptance
C)Objectivity and quantifiability
D)Objectionability and quantitivity

Question 19

Mintzberg criticized the M-form because:

A)Decision making may be decentralized, but divisional CEOs may stop all further decentralization, and divisional autonomy soon disappears when performance decreases
B)In practice the corporate center can impose inappropriately standardized control systems and management styles
C)Both a and b
D)Neither a nor b; he was attacking Williamson's critics

Question 20

The BCG matrix has two dimensions:

A)Speed of change, and business life cycle span
B)Rate of market growth, and relative market share
C)Strengths of the firm, and weaknesses of the divisions
D)Relative market growth, and market share

Question 21

The Profit Impact on Market Strategies data base (PIMS) uses data from 4000 firms to study:

A)The impact of strategy and market structure on business-level profitability
B)The impact of intensity of rivalry on profitability
C)The impact of profitability on marketing spend
D)The impact of profitability on the structure of the market

Question 22

The basic purpose of the "Ashridge portfolio display" is to:

A)Study the synergies, or fit, between a business and its corporate parent
B)Compare the profitability of each individual business under the corporate umbrella
C)Display the advantages of each individual business in regard to rivals in the same industry
D)Justify how to get rid of loss-making businesses

Question 23

Using the BCG matrix:

A)Assumes that each business in the portfolio has strong synergies with every other in the group
B)Has gained in popularity in recent years
C)Yields the possibly surprising result that well-known firms like Pepsi may be 'dogs' because they are No.2 in a mature industry
D)Has been abandoned in recent years, because it is too complex

Question 24

The main differences between strategic planning and financial controls are:

A)Strategic planning includes financial measures while financial control ignore non-financial strategic issues
B)Strategic planning focuses on medium-term strategic goals, while financial control focuses on short-term financial goals
C)Both focus on outputs, but financial control focuses on medium term outputs
D)Both focus on short-term outputs

Question 25

One aim at the heart of corporate strategy is to

A)Operationalize the corporate IT strategy
B)Extract as many synergies as possible from the different businesses in the group
C)Maximize economies of scale within the group
D)Articulate the CEO's personal business model

Question 26

The simplest form of resource sharing in a multidivisional firm is to:

A)Provide some services and functions in common - from the corporate center
B)Transfer technology across divisions
C)Transfer top executives across divisions
D)Centralize the provision of command and control instruments

Question 27

The balanced scorecard, strategy maps, and an office of strategy management are tools that aim to:

A)Evaluate rivals' strategies and capabilities more efficiently
B)Link strategic planning to operational performance more effectively
C)Bring more accurate information to the corporate parent for control
D)Reduce conflicts between divisions and the corporate parent

Question 28

Which organizational entity is responsible for setting and monitoring performance targets?

A)The Strategic Controls department
B)The corporate headquarters and the top management of each division
C)Each division
D)The CEO and finance executives of each division

Question 29

When planning corporate strategy, the most challenging task for corporate headquarters is to:

A)Build a strategic plan quickly that achieves all the corporate goals
B)Resolve conflicts among divisions
C)Encourage divisional initiative and strategic proposals
D)Allow divisions to have sufficient initiative and decision making powers to choose and plan their own goals and strategies, while achieving all the common corporate goals

Question 30

A holding firm is:

A)A financial term to designate any firm
B)A firm that belongs to the state, or is state-related
C)A conglomerate which is highly diversified, and where no linkages exist between its businesses
D)A parent company that owns controlling stakes in several subsidiaries, but, beyond appointing the boards, does not exert significant management control

Question 31

In practice, the benefits of centralized common services are:

A)Non-existent
B)Smaller than corporate managers anticipate
C)Decreasing with time
D)Increasing with time

Question 32

In practice, firms separate their corporate headquarters into two groups:

A)A business supervising unit, and a strategic planning department
B)A corporate management unit, and a shared service organization
C)A shared service organization, and an operational support entity
D)The Office of the CEO, and everything else

Question 33

The "standalone", or general influence of the corporate parent, can:

A)Control performance targets
B)Irritate division managers, who never understand the corporate parent's role
C)Hardly create any value
D)Create considerable value for a firm

Question 34

The difference between transferring skills and sharing activities is?

A)Transferring skills typically requires bringing in new resources from outside the group to bring in fresh capabilities, while in sharing activities, the corporate center changes the structure to create units with multidivisional responsibilities such as marketing, design or R&D
B)Transferring skills typically requires moving people to pass on their skills from one division to another, while in sharing activities, the corporate center changes the structure to create units with multidivisional responsibilities such as marketing, design or R&D
C)Sharing activities requires the corporate center to become involved while transferring skills does not
D)Transferring skills requires the corporate center to become involved while sharing activities does not

Question 35

When a firm uses input or output controls, which of the following statements is true?

A)They cannot be used together
B)They must be used together
C)They are similar
D)There is an unavoidable tradd.off between the two

Question 36

Which of these tools is the most difficult to use?

A)The GE/McKinsey matrix
B)The BCG matrix
C)The Ashridge portfolio display
D)The Five forces model of competition

Question 37

Porter identifies 4 types of corporate strategy. Which of the following are included in what he describes?

A)Portfolio management means controlling a group of investments by spreading your risks
B)Restructuring means buying badly-managed companies, changing the management, and restructuring them
C)Transferring skills means moving people and skills between different divisions
D)Answers b and c

Question 38

One of the criticisms of strategic planning is that it:

A)Is too difficult to implement
B)Is exceptional that such a technique produce a coherent plan
C)Does not really influence most companies' actual strategies
D)Is impeded by conflicts between divisions

Question 39

Regarding the balance between strategic planning and financial control, the trend over time:

A)Has been for financial control to become more common
B)For strategic planning to become more common
C)Has been for both to remain common
D)Has been for both to decrease in popularity

Question 40

What are the two dimensions of the Ashridge portfolio display?

A)The relative organizational power of the parent, and the business's innate profitability
B)The parent's potential to add value to a business, and its potential to impose effective control on the business
C)The parent's potential to create value, and its potential to destroy value in that business
D)The cultural fit between the parent and the business, and the rate of information transfer across businesses

Question 41

Cross-divisional task forces are:

A)Teams in charge of cross-divisional processes or projects, that need high-level sponsorship
B)Project teams built to develop new organizational forms
C)Links between the divisional financial departments
D)Project teams built to explore future business opportunities

Question 42

The core tasks of corporate level strategy are to answer the following questions:

A)What tools should the corporate center use to coordinate and control divisions?
B)How should the corporation be structured?
C)What roles and styles of leadership should the top management play?
D)All of the above

Question 43

Despite much research the evidence on mergers is confused because:

A)Reliable data is hard to find
B)Each merger is unique and there are many influences on both companies' profitability, even without any merger
C)Each merger is unique and it is hard to calculate profitability after a merger
D)Bankers' fees are confidential, and should be netted out

Question 44

CEOs should be good at managing contradictions such as:

A)Integrating resources and capabilities across the group, while controlling each division tightly
B)Exploiting all present resources and capabilities, yet creating new ones, while achieving efficiency and innovation
C)Both A and B are true
D)Neither A nor B is true: CEOs should be focused

Question 45

For a merger to add value to both sets of shareholders realistic synergies must be identified and achieved. This implies

A)The buyer must have intimate knowledge of the company being bought
B)The company being bought must have detailed knowledge about the acquirer
C)Both A and B are true
D)Neither A nor B really matters, as everything depends on postmerger integration in the end

Question 46

How does corporate management create value?

A)It manages the business portfolio and the individual businesses
B)It manages linkages between businesses
C)It leads change
D)All of the above

Question 47

The most important task of a multibusiness corporation's CEO is to?

A)Resolve the agency problem
B)Optimize the use of resources and capabilities across its businesses
C)Foster identity and direction across the group
D)Provide low cost financial resources

Question 48

Williamson described corporate headquarters as:

A)The center of the corporation
B)The center of the problem
C)The stockholders' agent, whose purpose is to monitor the company's operations
D)The controller of all resources within the company

Question 49

Which structure is the dominant organizational form for multibusiness companies?

A)The matrix structure
B)The multidivisional structure
C)The holding structure
D)The functional structure

Question 50

Williamson thought a multi-divisional company solved two economic problems: :

A)Allocation of resources, and succession problems
B)Allocation of resources, and the agency problem
C)Organizational change, and trade union activities
D)None of the above

Question 51

Hewlett-Packard has a large corporate center, while Berkshire Hathaway employs around 50 people. The cause of this is:

A)HP has mediocre profitability
B)Berkshire Hathaway has mediocre profitability
C)HP's is a divisional business where each unit has many links with each other and the center, while BH is a financial holding company
D)Warren Buffett runs a tighter ship than HP

Question 52

The McKinsey "restructuring pentagon" describes:

A)A framework to restructure a business unit
B)A systematic framework for analyzing the costs of restructuring a business unit
C)A systematic framework to increase the market value of a multidivisional group through increasingly difficult stages of corporate restructuring
D)A framework to identify the businesses a firm should get rid of

Question 53

What is corporate governance?

A)The way a firm is organized
B)The way a firm makes decisions
C)The system by which the top management of a firm is directed and controlled
D)The way a firm appoints and replaces its CEO

Question 54

He added that two further benefits are:

A)Minimizing goal conflict and avoiding coordination costs
B)Maximizing coordination costs and avoiding goal conflict
C)Minimizing coordination costs, and avoiding goal conflicts
D)Minimizing coordination costs and stockholders' liabilities in the event of bankruptcy

Question 55

Oliver Williamson said two advantages of the M-form group were:

A)Allowing decision-making to be closer to the markets (dispersed around the organization) and centralizing high-frequency decision making
B)Allowing decision-making to be closer to the markets (dispersed around the organization) and decentralizing high-frequency decision making
C)Making the top management team responsible for coordination across the company and decentralizing high-frequency decision making
D)Making the top management team responsible for coordination across the company and centralizing high-frequency decision-making

Question 56

What are the key differences between a multidivisional company and a holding company?

A)A holding company does not have a centralized treasury
B)The holding company exercises control over the subsidiary by setting detailed strategic goals that are consistent with corporate goals
C)The holding company's subsidiaries retain high level of autonomy and separate stock market quotations
D)All of the above

Question 57

The large multidivisional firm successfully solves the agency problem.

A)This statement is true
B)This statement is not true
C)This statement is not supported by evidence
D)This statement does not make sense

Question 58

Porter maintains that the potential for corporate value creation increases as a group's divisional activities become more integrated. The problem is:

A)Porter has no experience running real companies
B)No company can keep a promise to always increase its divisional synergies
C)The idea of corporate value creation is practically useless, because it cannot be measured
D)There is a big difference between potential and achievement.

Question 59

What is the empirical evidence on merger and acquisition performance?

A)The shareholders of the acquired firm gain
B)The shareholders of acquiring firms rarely gain significantly, and often lose
C)A and B are both true
D)A and B are both false

Question 60

Once a firm has thousands of shareholders the agency problem is accentuated because of:

A)Coordination difficulties
B)Coordination difficulties, and it is easier for disgruntled stockholders to sell their shares than engage management
C)Coordination difficulties and information asymmetry
D)The costs of engagement are lower than the likely returns

Question 61

Williamson believed that one of the key advantages of the M-form was that it centralized decision making in corporate headquarters.

Question 62

Strategic planning focuses on medium-term strategic targets for a firm, while financial control systems focus on long-term financial results

Question 63

According to the OECD's Principles of Corporate Governance Board Directors of a group are required to act "…in good faith … in the best interests of the company and its creditors."

Question 64

Oliver Williamson was the first person to provide a theoretical rationale for the multidivisional (M-form, as he called it) firm

Question 65

Vital questions relate to the role of the corporate head office and its relationships with the businesses

Question 66

Williamson thought the M-form solved two key problems of large multibusiness organizations: allocation of resources, and peripheral agency proliferation costs

Question 67

A strategic inflection point is a point where major changes in a firm's competitive environment require a complete change of strategy

Question 68

The two axes of the BCG growth-share matrix are real growth rate of the market, and market share

Question 69

By focusing on annual planning cycles strategic planning systems have often proved irrelevant to the actual strategies executed by businesses

Question 70

In multibusiness corporations, corporate management invariably takes primary responsibility for business level strategy

Question 71

The closer the linkages between groups of businesses, the fewer the opportunities for creating value from sharing resources or transferring capabilities, and the smaller the need for coordination across businesses

Question 72

The notion of parenting advantage refers to the need for the corporate head office of a firm to offer larger gains to its divisions than rival corporations could

Question 73

The final step in the McKinsey pentagon is to establish the value of the company after optimizing for all internal restructurings and external improvements, so that management can rapidly sell the business to a corporate raider

Question 74

For a multidivisional firm, managing a business portfolio refers to any actions which impact the composition and balance of that portfolio.

Question 75

Differences in national cultures and corporate cultures can readily be minimized by rapid post-merger integration.

Question 76

Almost every study shows that the shareholders of firms being taken over lose out from being taken over.

Question 77

The fit or misfit between the business's needs and the parent's corporate style

Question 78

A simple advantage of a multibusiness is the ability to share the ideas generated by wide and rich inputs from multiple global sources

Question 79

Mintzberg criticized the M-form for having two rigidities: in practice decentralization is limited only to division CEOs, and in practice the corporate centre tends to impose standard deadlines on all divisions